With markets booming, low interest rates and a lack of internally generated growth, management teams are looking to grow their companies through mergers and acquisitions.
Australian M&A activity totaled US$37bn in the three months to the end of March, almost double its level in the same period a year ago, boosted by deals like Japan Post’s $8bn takeover of Toll Holdings (ASX: TOL), TPG Telecom’s (ASX: TPM) $1.4bn bid for iiNet (ASX: IIN) and the proposed $2.2bn merger of Novion Property (ASX: NVN) and Federation Centres (ASX: FDC).
Yet the evidence suggests that most deals end badly for shareholders. A study by KPMG in 1999, for example, highlighted that ‘83% of mergers were unsuccessful in producing any business benefit as regards shareholder value’. More recently, in the March 2011 issue of Harvard Business Review, Clayton Christensen and Richard Alton declared that ‘study after study puts the failure rate of mergers and acquisitions at somewhere between 70% and 90%’.
In Protect yourself from M&A disaster – published today on Intelligent Investor Share Advisor – we examine why companies continue to try to defy the odds, and how they try to sell their deals to unwitting investors. But not all acquisitions end badly, and we pick out ten signs that may point to a good outcome.
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